Hello everyone, we’re back again! This time we are going to briefly review the debacle that is flood insurance. Operated by the National Flood Insurance Program (under the auspices of FEMA) or NFIP for short, flood insurance has gone through quite the upheaval lately. This is due, in large part, to the fact that the program is about $20 BILLION in debt.

As a result, Congress passed the Biggert-Waters Act in 2012 in an attempt to bring the NFIP’s budget deficit back in line. This was to be accomplished primarily by removing subsidies from policies in heavily flood-prone areas so the premium reflected the real risk of insuring a homeowner in such an area. As you can imagine, this created quite a bit of backlash from property owners along the coast, particularly those in Louisiana.

The resultant premium increases imposed by Biggert-Waters were shocking and dramatic, far higher than what was originally predicted. Instead of removing subsidies over time, as was initially proposed, they were yanked all at once for thousands of property owners nationwide. For example, one of our clients saw her premium jump from a little less than $500 to nearly $3,000 in one year.

Thus Congress & the Senate recently passed the Homeowners Flood Insurance Affordability Act. Boiled down, the HFIAA basically sets annual limitations on premium increases to attempt to raise rates in (very small) steps. However, even a glance at FEMA’s overview page outlining the changes reveals confusing and challenging definitions and procedures. When I called the company about getting our client’s premium scaled back due to the change, I was told, almost word for word, “We don’t know whether the new act is going to affect her premium, so we are going to wait until FEMA tells us to do something.”

Very simply, I would summarize all the changes to flood insurance this way: Our government took a program that was quite literally drowning in debt, put together a knee-jerk and poorly executed solution, and reversed it in a similarly ineffective fashion in response to public outrage. This article puts it all together perfectly.

The government had a chance to fix a broken program that had previously served constituents relatively well. It had its problems, as most government programs do, but it was completely blindsided by the severity of storms like Katrina and Sandy. Instead of scaling up property owner premiums over 5 or 10 years to more accurately reflect the risk that they carry, a “NOW NOW NOW” followed by a “LATER LATER LATER” mentality prevailed. As usual, it will ultimately be the property owners and tax payers who foot the bill.